The Udhna Udhyognagar Sahakari Sangh Ltd., Surat V. The ACIT.,Circle-2, Surat

ITA 2026/AHD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60244 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 14-03-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 23-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SAPNESH SETH
• Keywords: Business income; Fair market value

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER I.T.A. NO.2026 / AHD/2009 (ASSESSMENT YEAR 2006-07) THE UDHNA UDHYOGNAGAR SAHAKARI SANGH LTD., CENTRAL ROIAD NO.10, PAPER BOOK NO.10, UDHNA UDHYOGNAGAR, SURAT VS. ACIT, CIRCLE 2, SURAT PAN/GIR NO. : AAAAT2932K (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI SAPNESH SETH, AR RESPONDENT BY: SHRI VINOD TANWANI, SR. DR DATE OF HEARING: 14.03.2012 DATE OF PRONOUNCEMENT: 13.04.2012 O R D E R PER SHRI A. K. GARODIA, AM:- THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORD ER OF LD. CIT(A) II, SURAT DATED 28.05.2009 FOR THE ASSESSMENT YEAR 2006 -07. 2. GROUND NO.1 IS AS UNDER: 1. THAT THE CIT(A) ERRED IN CONFIRMING THE ADDITIO N OF RS.62,98,780/- ON ACCOUNT OF SHOP VALUATION. 2.1 THE BRIEF FACTS TILL THE ASSESSMENT STAGE ARE N OTED BY LD. CIT(A) IN PARA 3, 4 & 4.1 OF HIS ORDER WHICH ARE REPRODUCED B ELOW: 3. IN THIS GROUND OF APPEAL, THE ASSESSEE HAS CON TESTED THE DISALLOWANCE AND ADDITION OF A SUM OF RS.62,98,780/ - WHICH THE I.T.A.NO. 2026 /AHD/2000 2 ASSESSEE HAD CLAIMED AS NOTIONAL/DEEMED LOSS ARISIN G FORM THE REVALUATION OF IMMOVABLE PROPERTIES. VIEW TAKEN BY OF THE ASSESSING OFFICER (A.O.): 4, ON A VERIFICATION OF THE P & L ACCOUNT, THE AO N OTICED THAT THE ASSESSEE HAD SHOWN PROFIT FROM THE SALE OF A SHED A T RS.51,86,775, THE COMPUTATION OF WHICH WAS AS UNDER (PARA-4 , PAG E-9 OF THE ASST. ORDER) : S.N. DESCRIPTION AMOUNT RS. AMOUNT RS. 1. 2 SURPLUS ON SALE OF FSI AMOUNT RECEIVED ON SALE OF FSI LESS: PROPORTIONATE DEEMED REDUCTION PROFIT ON SALE OF SHOPPING COMPLEX TOTAL AMOUNT RECEIVED ON SALE OF SHOPS LESS COST OF SHOPS SOLD 1,11,11,111 62,98,773 14,71,002 10,96,558 48,12,338 3,74,444 TOTAL PROFIT 51,86,782 THE AO FURTHER NOTED FROM THE ABOVE THAT FROM THE C ONSIDERATION RECEIVED ON THE SALE OF FSI, THE ASSESSEE HAD REDUC ED THE SUM OF RS.62,98,773. THE ASSESSEE SUBMITTED THAT THIS SUM REPRESENTED THE REDUCTION IN THE VALUE OF CERTAIN IMMOVABLE PRO PERTIES (PAGE- 10). THE AO ISSUED A SHOW-CAUSE NOTICE ASKING THE A SSESSEE TO EXPLAIN WHY SUCH CLAIM SHOULD NOT BE DISALLOWED. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THERE WAS A SHOPPING COMPLE X WHICH WAS CONSTRUCTED IN THE YEAR 1992-93, THE PROJECT HAD FA ILED SINCE A NUMBER OF SHOPS WERE NOT SOLD AND HAD REMAINED IDLE AND UNUSED AND WHICH WERE SHOWN IN THE ASSESSEE'S CLOSING STOC K OF IMMOVABLE PROPERTIES. THE BOARD OF DIRECTORS THEREF ORE DECIDED TO REVALUE SUCH PROPERTIES BY ADOPTING THE METHOD OF V ALUATION AT COST OR MARKET VALUE WHICHEVER WAS LOWER. ACCORDING TO T HE ASSESSEE, THE PREVAILING MARKET VALUE WAS RS.298 PER SQ.FT. T HE ASSESSEE HOWEVER, REVALUED THE SHOPS IN PHASE-A AT RS.470 PE R SQ.FT. AS AGAINST THE ORIGINAL COST OF RS.706 PER SQ.FT, AND SHOPS IN PHASE-B AT RS.416 PER SQ.FT. AS AGAINST RS.583 PER SQ.FT. T HUS, THE SAID PROPERTIES WERE DEVALUED BY RS.62,98,773 (PAGE-11). 4.1 THE AO HOWEVER, REJECTED THE SUBMISSIONS OF THE ASSESSEE OBSERVING AT DURING THE RELEVANT YEAR, THE REAL-EST ATE BUSINESS WAS GOING THROUGH A BOOM AND THEREFORE, THE CLAIM T HAT THE I.T.A.NO. 2026 /AHD/2000 3 PROPERTIES NEEDED TO BE REVALUED BECAUSE THERE WAS NO DEMAND IN THE MARKET, WAS NOT ACCEPTABLE ESPECIALLY SINCE, DURING THE SAME YEAR, THE ASSESSEE HAD SOLD 80,000 SQ.FT. OF FSI AT A HUGE PROFIT OF RS.1,11,11,111. SIMPLY BECAUSE THE SHOPPING CO MPLEX WAS RUNNING AT LOSS WAS NOT A JUSTIFIABLE GROUND FOR NO TIONALLY REDUCING THE VALUE OF SUCH PROPERTIES. THERE WAS ALS O NO BASIS OR EVIDENCE TO SUPPORT THE ASSESSEE'S CLAIM OF WHAT WAS THE PREVAILING MARKET VALUE. THE AO FURTHER NOTED T HAT IN CLAUSES- 12(A) AND 12(B) OF THE TAX AUDIT REPORT, WHERE T HE INFORMATION WITH REGARD TO THE METHOD OF VALUATION ADOPTED FOR THE CLOSING STOCK DURING THE PREVIOUS YEAR IS PROVIDED, IT WAS MENTIONED 'NOT APPLICABLE'. THIS MEANT THAT THERE WAS NO PARTICULA R METHOD ADOPTED IN THE VALUATION OF CLOSING STOCK. IN ANY CASE, THE ASSESSEE HAD NOT CONSISTENTLY FOLLOWED THE METHOD OF VALUATION, AT COST OR MARKET PRICE WHICHEVER WAS LESS, OVER TH E YEARS. IT HAS BEEN FURTHER NOTED THAT WHEN CONFRONTED WITH THE 'J ANTRI RATE' ADOPTED BY THE SUB-REGISTRAR FOR THE SAME AREA, IT WAS SUBMITTED BY 'TRIE' ASSESSEE THAT THE SAME WAS NOT APPLICABLE TO THE ASSESSEE SINCE, THE ASSESSEE HAD OFFERED INC OME FROM THE SALE OF THE PROPERTIES AS BUSINESS INCOME AND NOT CAPITAL GAIN. THE ASSESSEE HAD THUS NOT BEEN ABLE TO SUBSTANTIATE SUCH REVALUATION OF PROPERTIES, AND CONSEQU ENTLY, IT WAS NOT JUSTIFIED IN ADJUSTING SUCH NOTIONAL LOSS ON REVALUATION AGAINST THE SALE PROCEEDS OF FSI. ON THE B ASIS OF SUCH FINDINGS AND OBSERVATIONS, THE AO DISALLOWED THE ASSESSEE'S CLAIM AND ADDED THE SUM OF RS.62,98,780 TO THE ASSE SSEE'S TOTAL INCOME. 2.2 BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) BUT WITHOUT SUCCESS AND NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 2.3 IT IS SUBMITTED BY THE LD. A.R. OF THE ASSESSEE THAT THESE SHOPS WERE CONSTRUCTED IN THE FINANCIAL YEAR 1992-93 AND THIS IS ALSO ADMITTED FACT THAT THE ASSESSEE IS IN THE BUSINESS OF REAL E STATE. HE ALSO SUBMITTED THAT IN SUCH A SITUATION, THE CLOSING STOCK SHOULD BE VALUED AT COST OR MARKET PRICE WHICHEVER IS LOWER. REGARDING THE M ARKET PRICE, IT WAS I.T.A.NO. 2026 /AHD/2000 4 SUBMITTED THAT THE A.O. HIMSELF HAS NOTED ON PAGE 1 2 OF THE ASSESSMENT ORDER THAT IN THE LIGHT OF DETAILED INQUIRY CONDUCT ED TO THE SUB-REGISTRAR SURAT, IT WAS REVEALED THAT DURING THE CURRENT YEAR FAIR MARKET VALUE IN THE BLOCK WAS @ RS.518/SQ.FT., WHEREAS THE ASSESSEE HAS VALUED THE CLOSING STOCK AT RS.470/SQ.FT. FOR PHASE A AND RS.570/SQ.FT FOR PHASE B. IT IS SUBMITTED BY HIM THAT AT THE WORST, THE RATE OF 518 /SQ. FT. CAN BE CONSIDERED FOR VALUATION OF CLOSING STOCK FOR THE P RESENT YEAR. HE SUBMITTED THE WORKING OF THE VALUE OF CLOSING STOCK ON THE BASIS OF RATE OF RS.518/SQ.FT. HE SUBMITTED THAT ON THE BASIS OF TH IS WORKING, THE REDUCTION IN VALUE OF CLOSING STOCK IS WORKED OUT A T RS.60,87,913/- AS AGAINST REDUCTION CLAIMED BY THE ASSESSEE AT RS.62, 98,773/- AND HENCE, ADDITION OFRS.2,10,860/- CAN BE JUSTIFIED BUT NOT B EYOND THAT. RELIANCE WAS PLACED ON THE JUDGEMENT OF HONBLE APEX COURT R ENDERED IN THE CASE OF SANJEEV WOOLEN MILLS VS CIT AS REPORTED IN 279 I TR 434. 2.4 AS AGAINST THIS, LD. D.R. OF THE REVENUE SUPPOR TED THE ORDERS OF AUTHORITIES BELOW. HE DREW OUR ATTENTION TO PAGE 4 OF THE ORDER OF LD. CIT(A) WHERE IT IS STATED BY LD. CIT(A) THAT THE ST OCK WAS VALUED IN ARBITRARY MANNER. HE STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 2.5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDER OF AUTHORITI ES BELOW. WE FIND THAT THIS IS AN ADMITTED FACT THAT THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE AND HENCE, CLOSING STOCK OF SHOPS CAN BE VAL UED AT COST OR MARKET PRICE WHICHEVER IS LOWER BECAUSE THIS IS AN ACCEPTE D METHOD OF VALUING CLOSING STOCK. REGARDING THE MARKET VALUE, WE FIND THAT IT IS NOTED BY THE A.O. ON PAGE 12 OF THE ASSESSMENT ORDER THAT THE RA TES WERE AT RS.518/SQ.FT IN THE CURRENT YEAR. HENCE, WE FIND FO RCE IN THIS SUBMISSION OF THE LD. A.R. THAT CLOSING STOCK OF THE PRESENT Y EAR MAY BE VALUED AT I.T.A.NO. 2026 /AHD/2000 5 THIS RATE OF RS.518/SQ.FT. BEING JANTRI RATE HE AL SO SUBMITTED VALUATION AS PER THIS RATE AND AS PER SUCH VALUATION, ADDITION O F RS.2,10,860/- IS CALLED FOR. WE HOLD ACCORDINGLY AND CONFIRM THE ADDITION OF RS.2,10,860/- OUT OF TOTAL ADDITION MADE BY THE A.O. OF RS.62,98,773/ -. THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 3. GROUND NO.2 IS AS UNDER: 2. THAT THE CIT(A) ERRED IN CONFIRMING THE ADDITIO N OF RS. 1,04,832/- ON ACCOUNT OF ALLEGED UNDISCLOSED INCOME . 3.1 IT WAS SUBMITTED BY THE LD. A.R. THAT SALE OF S HOPS SHOWN BY THE ASSESSEE IS OF RS.14,73,002/- AGAINST THE COST OF C ONSTRUCTION OF RS.10,96,558/-. IT WAS SUBMITTED THAT A CHART WAS PREPARED AND SHOWN TO THE A.O. IN SUPPORT OF THIS CONTENTION THAT THE AVE RAGE MARKET RATE IS OF RS.298/SQ.FT. BEING THE FAIR MARKET VALUE. IT WAS SUBMITTED THAT THIS CANNOT BE TAKEN AS A BASIS FOR ALLEGATION OF UNDER STATEMENT OF SALE CONSIDERATION BECAUSE IF THIS CHART IS CONSIDERED A S SACROSANCT, THEN, THE MARKET VALUE OF THE SHOPS WORKS OUT AS PER THIS CHA RT SHOULD ALSO BE ACCEPTED. IT WAS SUBMITTED THAT THIS MATTER MAY BE RESTORED BACK TO THE FILE OF THE A.O. FOR A FRESH DECISION AND THE ASSES SEE WILL BE ABLE TO EXPLAIN THE MISTAKES IN THIS CHART. 3.2 LD. D.R. OF THE REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 3.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT ON THE ONE HAND, THE A.O. IS NOT ACCEPTING THE MARKET VALUE WORKED OUT ON THE BASIS OF THIS CHART AT RS.298/SQ.FT. AND ON THE OTHER HAND, THE A.O. IS MAKING ADDITION OF RS.1,04,832/- BY ALLEGIN G THAT THERE IS UNDER STATEMENT OF SALE PRICE OF 14 SHOPS SOLD BY THE ASS ESSEE IN THE PRESENT YEAR ON THE BASIS OF THIS VERY CHART. THIS STAND OF THE A.O. IS NOT JUSTIFIED. I.T.A.NO. 2026 /AHD/2000 6 BEFORE US, IT WAS SUBMITTED BY THE LD. A.R. THAT TH E MATER MAY BE RESTORED BACK TO THE FILE OF THE A.O. FOR A FRESH D ECISION BECAUSE THIS CHART IS CONTAINING SOME MISTAKES WHICH CAN BE EXPLAINED BEFORE THE A.O. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) O N THIS ISSUE AND RESTORE THIS MATTER BACK TO THE FILE OF THE A.O. FO R A FRESH DECISION. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 4. GROUNDS NO.3 & 4 ARE AS UNDER: 3. THAT THE CIT(A) ERRED IN REJECTING THE CLAIM OF DEDUCTION RS.50,000/- U/S-80P(2)(C) ON ACCOUNT OF CONSUMER'S COOPERATIVE SOCIETY. 4. THAT THE CIT(A) ERRED IN REJECTING THE CLAIM OF DEDUCTION OF RS. 16,315/-U/S-80P(2)(E) ON ACCOUNT OF WARE HOUSE RENT . 4.1 BOTH THESE GROUNDS WERE NOT PRESSED BY THE LD. A.R. OF THE ASSESSEE AND ACCORDINGLY, THESE GROUNDS ARE DISMISS ED AS NOT PRESSED. 5. GROUND NO.5 IS AS UNDER: 5. THAT THE CIT(A) ERRED IN TREATING THE RENTAL IN COME OF RS.5,33,012/- AS BUSINESS INCOME. 5.1 IT WAS SUBMITTED BY THE LD. A.R. THAT ON THIS I SSUE, THE TRIBUNAL HAS DECIDED THIS ISSUE IN ASSESSEES OWN CASE FOR THE A SSESSMENT YEAR 2005-06 IN I.T.A.NO. 1215 & 2021/AHD/2008 DATED 24.09.2010. HE SUBMITTED A COPY OF THIS TRIBUNAL DECISION WHICH IS AVAILABLE O N PAGES 1-17 OF THE PAPER BOOK. HE DREW OUR ATTENTION TO PARA 5.4 OF T HIS TRIBUNAL ORDER AS PER WHICH THIS ISSUE WAS RESTORED BACK BY THE TRIBUNAL TO THE FILE OF LD. CIT(A) FOR A FRESH DECISION. HE SUBMITTED THAT ACC ORDINGLY IN THE PRESENT YEAR ALSO, THIS ISSUE MAY BE RESTORED BACK TO THE F ILE OF LD. CIT(A) FOR A FRESH DECISION ON SIMILAR LINES. I.T.A.NO. 2026 /AHD/2000 7 5.2 AS AGAINST THIS, LD. D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW. HE ALSO SUBMITTED THAT NO SUCH GROUND WAS TAKEN BY THE ASSESSEE BEFORE THE LD. CIT(A) AND HENCE, THIS ISSUE CANNOT BE RAIS ED NOW. 5.3 IN THE REJOINDER, IT WAS SUBMITTED BY THE LD. A .R. THAT THIS IS A LEGAL ISSUE WHICH CAN BE RAISED AT ANY POINT OF TIME. 5.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. REGARDING THIS CONTENTION OF THE LD. D.R. THAT THIS ISSUE CAN NOT BE RAISED AT THIS STAGE, WE ARE SATISFIED THAT THIS IS A LEGAL ISSUE AND HENCE, CAN BE RAISED AT ANY STAGE. IN ASSESSMENT YEAR 2005-06, THE TRIBUNA L HAD RESTORED BACK THE SIMILAR ISSUE TO THE FILE OF LD. CIT(A) FOR A F RESH DECISION AS PER PARA 5.4 OF THE TRIBUNAL ORDER WHICH IS REPRODUCED BELOW : 5.4. IN VIEW OF THE FOREGOING, ESPECIALLY WHEN CO MPLETE FACTS AND CIRCUMSTANCES ARE NOT EVIDENT FROM THE IMPUGNED ORD ERS IN THE INSTANT CASE NOR THE RESPECTIVE PARTIES COULD THROW ANY LIGHT , WE CONSIDERED FAIR AND APPROPRIATE TO-SET ASIDE THE OR DER OF THE LD. CIT(A) AND RESTORE THE ISSUES RAISED IN GROUND NO. 1 TO THE APPEAL TO HIS FILE FOR DECIDING THE MATTER AFRESH IN ACCOR DANCE WITH LAW AFTER ASCERTAINING COMPLETE FACTS AND IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AND OF COURSE AFTER ALLOWING SUFFICIEN T OPPORTUNITY TO BOTH THE PARTIES, KEEPING IN VIEW VARIOUS JUDICIAL PRONOUNCEMENTS .INCLUDING THOSE REFERRED TO ABOVE. NEEDLESS TO SAY .-THAT. WHILE REDECIDING THE APPEAL, THE /EARNED CIT(A) SHALL PAS S A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT. WITH THESE OBSERVATIONS, GROUND NO. 1 IS DISPOSED OF. 5.5 IN THE PRESENT YEAR ALSO WE RESTORE THIS MATTER BACK TO THE FILE OF LD. CIT(A) FOR AFRESH DECISION IN LINE WITH THE DIRECTI ON OF THE TRIBUNAL IN ASSESSMENT YEAR 2005-06. THIS G ROUND OF THE ASSES SEE IS ALLOWED FOR STATISTICAL PURPOSES. I.T.A.NO. 2026 /AHD/2000 8 6. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS PAR TLY ALLOWED IN TERMS INDICATED ABOVE. 7. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE M ENTIONED HEREINABOVE. SD./- SD./- (KUL BHARAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION 9/4 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 10/4.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 13/4 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.13/4 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 13/4/12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .